8/26/17 55.01 down 22% for the year. I still am not ready to issue even a limit order for Target. Too many questions, but still watching them closely.
8/15/17 Target has their issues, but they are too big, too well positioned to write them off. As other retailers fail, it makes a bit more space for Target. They are giving this immediate gratification, (Next day delivery etc), a close look and not just looking. Buying a shipping/logistics company! WSJ reports they are hiring the skills they would need: "Target is hiring former executives from General Mills (NYSE:GIS) and Wal-Mart (NYSE:WMT) to help bolster its food and beverage business. "Across all categories of our business, we are investing to build an even better Target (NYSE:TGT) for our guests," said Mark Tritton, executive vice president and chief merchandising officer. "We have been making positive progress with our assortment, presentation and operations."" Target is currently selling for 55.00. I am not big on the impact of earnings on stocks, but this is their chance to explain what their next steps are.
7/25/17 TGT is down almost 28% for the past 52 weeks. They need to make some major moves soon. However Morningstar, (A rating), shows they have a lot of debt. That could make that juicy dividend hard to fund over the next few years. I doubt they are a good long investment and possibly will be more market share for AMZN and WMT.
6/30/17 Motley Fool had this to say about Costco, "Management is willing to give up short-term profitability to keep its subscriber base thrilled with the shopping experience. Its 2% net income margin puts it far below other retailing chains, but has been a key driver behind its unusually high sales growth."
Big Box and Mall Retail Shopping Crisis BBBY, KOHL SHLD, RSHCQIn search of a thesis: the next section has a number of reasons malls are in trouble and the retail jobs that go with them. Everyone knows that, the question is not who is going down, retailers, REITs that specialize in malls. But, I would prefer to profit on growth, who and what stands to benefit from this opportunity.
9/20/17 Bed Bath and Beyond BBBY dropped 15% in the stock market today to 22.81. This is a very small sample size, but Kathy and I have only been in a store, one time in three years. Granted out house is furnished. When we needed washcloths we went to Wal-Mart.
9/19/17 Kohl and Amazon have announced a business tie-up, they are going to test being an Amazon return center. This is the closest thing I have seen to a potential re-vitalization of shopping malls and complements many AMZNs strategy, not sure about Kohls.
9/18/17 Now TOYS, Toys R Us looks like it will file for bankruptcy. This story keeps coming down to debt, "It must refinance $400 million of its crushing $5 billion debt next year with lenders who have grown less patient about waiting for results and who are less confident about the future of traditional retailers." In 2005, KKR and Bain Capital and Vornado took the company private in a $6.6 billion deal. No they have a lot of debt.
8/26/17 The latest media attention seems to be Footlocker, FL, 35.88 down 46% for the year and other sporting goods stores.
UPDATE: 6/3/17 this notebook entry started out focused on Sears, but I realize that the entire retail industry is strongly affected.
SHLD. For years, many would argue since 2004, Sears Holdings, (Sears and K-mart) have been faltering. They are now at death's door. The Washington Post has a great story about the fall of Sears. As of June 2, SHLD has lost almost 45% of its value. 6/13/17 SHLD has announced they are cutting 400 jobs. Conventional wisdom is still that Seritage Growth Properties (NYSE:SRG), a real estate investment and has interests in 266 properties, most of them from Sears Holdings.
Since the REIT was created in 2015, financial pundits have been claiming that as Sears Holding decreased, the REIT would increase by leasing the closed properties. Recently, we have seen some, "I'm not so sure" posts. This is because malls are closing, CNN Money reports that 25% of the malls will be closed in five years. If this is true, who will lease SRG's properties, (SRG is down over 10% in the past 90 days)? Sears Canada, (SHLD is an investor), is running out of money and must borrow to remain operational for another year. Since these are mall stores this also affects Canadian REITs. 6/22/17 WSJ reports Sears Canada about to file bankruptcy.
Sears Holdings CEO Ed. Lampert's Seritage thesis. As the market currently stands physical shopping centers, home of the declining big box stores, are ideally located, and at least at the moment, believed to be valuable real estate. If Sears Holdings unravels too fast for Seritage to take advantage then what? It isn't just Sears/K-Mart, Macy's, JC Penney, Kohls, J Crew, etc. are closing stores fast, see Clark report for comprehensive list. Nordstrom just released a PR expressing interesting in going private. It is worth pointing out that Wal-Mart goes it alone as opposed to anchoring malls. In some cases, the chains are going bankrupt. 6/20/17 Amazon Prime Wardrobe hits JC Penney and Nordstrom, (does anyone actually buy clothes at JC Penney other than kids to small to fight back to school?)
Malls in general.
9/20/17 I found a 2012 URL with the top 10 REITS with mall exposure. Number 1 was SPG, they appeared to peak mid-2016 above 220, have dropped at lot and are selling at 159 something. Note: when they need credit to spruce up malls, where is it going to come from? #2 GGP has a similar curve.
Is online retail the future or even the present? BusinessInsider predicts 8 - 12% growth in online retail in 2017. Globally, Amazon Inc., Wal-Mart Stores Inc. and Apple Inc. are the top 3. A better way to look at purchase future is high-value. This 1/5 of customers account for 50% of sales and that is a long standing rule of thumb.
- Is the overall decline in big box brick and mortar and the malls that host them a major factor? USA Today has a thought provoking piece. For a real downer Market Watch is comparing brick and mortar to the oil and gas industry. CNN Money says, "Brokerage firm Credit Suisse said in a research report released earlier this month that it's possible more than 8,600 brick-and-mortar stores will close their doors in 2017. " McKinsey says that just selling doesn't work, the mall has to be an experience, (take with a grain of sand, shopping at Wal-Mart can hardly be called an experience, that is back to value.).
NPR carried a piece on the malls in danger, "LEINBERGER: It's the middle-market malls that are in biggest danger of going dark. The fortress malls - those huge, you know, 1-and-a-half-, 2-million-square-foot malls like the King of Prussia Mall outside of Philadelphia - those are fine. But it's the ones anchored by JCPenneys and Sears that are and will go increasingly dark."
I did find an author that claims physical space is "coming back", "But physical space is reinventing itself. Malls continue to focus on "experience" versus "things". The example he gives is PEI who has lost 54% of their value in the past 12 months. The author may be right, eventually, but I am betting against physical space in the short term. Have you ever seen what happens when the asphalt of the parking lot starts to give way?
- Who is the "dark horse", the unknown that will benefit from the change in shopping habits? Online retail! If you focus on Amazon, most people say Wal-Mart, the number 2. If you focus on Wal-Mart most people say Target, which doesn't make any sense to me, but bears investigation, (they are profitable, have an attractive P/E and a decent dividend, (as of 6/1/17 TGT is down almost 20%, they also have more debt than I like to see, but they are managing it so far.).
Retail jobs crisis.And what about the people that work in those stores? Retail, according to marketwatch has shed 30,000 positions over 12 months. BusinessInsider reports, "The US administration has focused its rhetoric on coal and manufacturing jobs. However, it's notable that the number of workers in general merchandise stores who have lost their jobs since October is greater than the entire number of people employed in the US coal industry." And yet we do not hear the furor that we hear from manufacturing and coal. But it can't remain silent much longer as it is impacting the economy. What other industry needs the skills of retail jobs? There are already "transition" articles appearing, but this one sounds like a rehash of retail. Some of them will end up in Amazon fulfillment centers, but retail is spread across the country and fulfillment centers are strategically placed.
It does not seem like there is enough demand for Stein Mart, Hobby Lobby and Five Below to reuse many of the big boxes. Empty big boxes can be adapted for churches, after all, most mall parking lots are not full on Sunday morning, however it requires a church with solid funding, (if you were a loan officer, would you make a loan to a church), in need of a big building. Looks like another case of a big opportunity looking for a bigger idea. Oh well.